PayPal's challenge: Keep its record-setting 2020 performance going

PayPal saw account openings and payment volumes soar as the world shifted away from cash. And as economies reopen, PayPal must determine whether consumers will continue their aggressive use of digital payments — or return to their old habits.

So far, the future is looking very digital.

“I’m pleased to say that on the heels of the strongest year in PayPal’s history, we just completed our strongest quarter ever because of the record financial and operating results,” Dan Schulman, president and CEO of PayPal, said in the company’s earnings call. “Customers across the world have clearly embraced the digital economy and PayPal has become an essential platform for both consumers and merchants."

PayPal raised its annual targets for earnings per share, total payment volume and net new accounts as a result.

The challenge for PayPal in the first quarter of 2021 was to continue its success it experienced last year where consumers flocked to the tech giant’s payments products in response to the global shift to e-commerce.

2020 will prove to be a difficult year to top, as the company added more than 72 million net new accounts and added crypto, a Venmo credit card, pay-in-store and buy now/pay later products. All of this was in addition to its core business of digital payments, which attracted many new users starting as early as thefirst quarterof 2020.

This was followed by a second quarter that was PayPal's best performance since its IPO, then continuing its winning streak in the third quarter and fourth quarter.

“We believe that the shift in consumer digital behavior will remain essentially unchanged in a post-COVID world,” added Schulman. “Consumers have expanded their digital lives into a seamless online and offline experience. Our products are an essential enabler of the digital economy.”

Schulman noted several factors that led to executives raising guidance for the company’s performance for the remainder of 2021 including Venmo, pay in-store with QR codes, buy now/pay later, the upcoming Super App and its partnership with Alibaba.

Venmo was highlighted as having particularly strong performance on multiple fronts including the rollout of the Venmo credit card, the ability for Venmo customers to buy, hold and sell cryptocurrencies and the popularity of its P2P functionality which helped lift its payment volume for the quarter to $51.4 billion in total payment volume, up 63% from the same quarter one year earlier.

“We are heavily investing in Venmo’s commerce capabilities which include rapidly upgrading the Pay with Venmo customer experience with initial rollout beginning this quarter,” said Schulman. “The Venmo credit card is outpacing our expectations for both new accounts and transactions. Our Venmo commerce [volume] and revenue growth continue to accelerate and we remain confident in our $900 million revenue target" for 2021.

Total payment volume reached $285 billion for the quarter, a record growth of about 50% over the $191 billion reported for the first quarter of 2020. Total volume for the trailing 12 months exceeded $1 trillion for the first time in the company’s history.

PayPal added 14.5 million net new accounts, ending the quarter with 392 million active accounts, of which 31 million were active merchant accounts. The company expects that it will end 2021 with an incremental 52 to 55 million net new accounts, up from the 50 million guidance it provided at the beginning of the year.

PayPal’s first quarter revenue rose 31% from a year earlier to $6.03 billion. Earnings per share on a non-GAAP basis rose 84% to $1.22. Data from Zacks Investment Research showed analysts had forecast PayPal would have earned $1.01 EPS on sales of $5.9 billion for the quarter.

Schulman noted that consumers and merchants have wholeheartedly embraced its with QR code functionality for in-store payments, with now more than one million merchant locations able to accept the payment type. PayPal expects this rapid adoption to continue to grow as COVID-19 has forever changed how consumers are interacting in both online and physical worlds.

The Pay-in-4 product, which launched in late 2020, saw the fastest adoption of any new product launch in PayPal’s history. Payment volume exceeded $1 billion in the first quarter, up from $750 million in the fourth quarter of 2020. Schulman noted that an increasing number of merchants are presenting the Pay-in-4 product upfront on their webpages in an effort to spur sales.

In the second quarter, PayPal will launch the buy now/pay later product in Australia, the home market for Afterpay. This will be followed by an expansion into Europe later in 2021, ostensibly moving in on Klarna’s turf.

PayPal’s plans to roll out a “Super App” have been highlighted in recent investor presentations. The app is expected to offer a wide range of capabilities including payments, shopping, financial services and digital IDs in a potential challenge to banks and other mobile wallets.

“We expect to roll out our next-generation digital wallet in Q3,” Schulman said. “It will be an all-in-one personalized app … consumers are turning to brands they trust when it comes to choosing a super app. That clearly plays into our strength.”

Finally, as PayPal continues to cut ties with its former parent company eBay, Schulman highlighted a strong opportunity that holds significant payment volume potential: Alibaba.

“This global agreement will enable hundreds of millions of consumers outside of China to shop across Alibaba sites in China … we are excited at the pace of our current ramp and the ultimate potential of this new partnership,” Schulman said.